5 Common Bookkeeping Mistakes – and how to avoid them

As a small business owner, you are juggling many tasks. You’re in charge of bringing in customers, managing your business’ operations, hiring employees, making sure they get paid, and maybe even accounting and bookkeeping.

Most people think of bookkeeping as a necessary chore that is always on their to-do list. But, while bookkeeping may not be your favourite task, a sound bookkeeping system can give your business a solid financial foundation.

When you are on top of your bookkeeping, a well-oiled system can help provide you with accurate insights about your business’s finances and make audits or tax time hassle-free.

Every business is unique, but there are common bookkeeping mistakes we see many small business owners make. Here are some typical mistakes we often catch, along with tips on avoiding these errors.

Mixing business and personal expenses

As a business owner, your business is probably on your mind 24/7. Unfortunately, one of small business owners’ most significant mistakes is mixing business and personal expenses. When you do not distinguish between your business and personal expenses, it can lead to inaccurate transactions and discrepancies that create headaches when discovered.

It is essential to separate your business’ finances from your personal finances. This will make it easier to track your expenses and income and help you at tax time, both personal and business.

Some simple ways to keep track of your business and personal expenses are:

• add a colourful sticker to your business credit card, so you can always be sure you are using the right credit card
• If you do charge business transactions to your personal card, or vice-versa, make a note of it or let your bookkeeper know right away.

These small actions will help you stay organized and make it easier to track your business’ expenses.

Not Keeping Good Records and Backups

Keeping good accounting and bookkeeping records can save you headaches when it is time to do your taxes or report on your company’s financials. It can be tempting to keep all your receipts in a shoebox or tell yourself that you will attach the invoice later. Unfortunately, these minor tasks add up and create a backlog in your records when it comes to bookkeeping.

A sound bookkeeping system can help you create a good foundation for your business’ finances. Knowing where to find the backup for all the transactions makes tax time or an audit stress-free.

Categorizing Transactions Incorrectly

Each time you spend money in your business, it can be expensed or capitalized.

Expenses are costs related to the day-to-day operations of your business, such as rent, utilities, and advertising. Capital expenditures are costs that you will reap the benefits of over a more extended period, such as the purchase of machinery, equipment, or vehicles.

Here are some transactions that are commonly recorded incorrectly:

• Recording bank transfers inaccurately if you have multiple bank accounts in your business
• Recording revenue twice, when a customer pays an invoice
• Miscategorizing amounts that you, as the owner, put in or withdrew from the company
• Losing track of how petty cash was used
• Recording an expense twice when you pay a vendor’s invoice

When these transactions are not categorized correctly, they can distort your company’s income and even lead to compliance issues, such as with tax authorities. On the other hand, when your business bookkeeping is accurate, it can help you get a clear picture of how your business is doing financially.    

Not reconciling on a timely basis.

Most accountants recommend reconciling your bank accounts to your ledger at least once a month. Staying on top of your bank reconciliation is one of the easiest ways to spot discrepancies in your business’s books.

When you compile bank reconciliations on time, you can be sure that you are up to date on your bookkeeping and that all the transactions are in order.

Timely reconciliations can also help you catch issues early. For example, you will know if your bank balance is too low, if you had unexpected one-time charges, customer payments that did not come through on time, or expenses that you might have paid twice accidentally.

Trying to do it all yourself.

Bookkeeping is not the most glamorous task in any business, but it is an essential function that creates the foundation of your business’s finances.

Unfortunately, bookkeeping can be time-consuming and confusing. If you find that bookkeeping takes up too much of your valuable time or energy as a business owner, an accountant or professional bookkeeper can help you keep track of your finances.

Look for an accountant or bookkeeper who understands your business’s goals and is familiar with your industry. Good professional help can free up your time and keep your books as clean as possible.

Good bookkeeping for a solid business foundation

Bookkeeping may feel like a chore, but it is the foundation of businesses that have healthy finances. If you are on top of your bookkeeping, it can give you accurate insights about your business’s finances and make audits or tax time hassle-free.

It is worth the extra time to look at common bookkeeping mistakes many small businesses make. The added effort can help your business maintain accurate records that you can rely on when you need a real glimpse into your business’s finances.  

Contact KSSP Partners LLP in Markham for your Accounting and Bookkeeping Needs

Talk to a professional bookkeeper to outsource your bookkeeping so that you can save time and focus on your business. At KSSP Partners LLP, our team of accountants and bookkeepers can provide services to outsource all your accounting needs. To learn more about how KSSP Partners LLP can provide you with the best accounting and bookkeeping expertise, contact us online or by telephone at 289-554-5997.